Correlation Between American Express and SoFi Technologies

Can any of the company-specific risk be diversified away by investing in both American Express and SoFi Technologies at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining American Express and SoFi Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Express and SoFi Technologies, you can compare the effects of market volatilities on American Express and SoFi Technologies and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in American Express with a short position of SoFi Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Express and SoFi Technologies.

Diversification Opportunities for American Express and SoFi Technologies

-0.46

Correlation Coefficient

American Express  SoFi Technologies

Very good diversification

The 3 months correlation between American and SoFi is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding American Express and SoFi Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SoFi Technologies and American Express is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on American Express are associated (or correlated) with SoFi Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SoFi Technologies has no effect on the direction of American Express i.e., American Express and SoFi Technologies go up and down completely randomly.

Pair Corralation between American Express and SoFi Technologies

Considering the 90-day investment horizon American Express is expected to generate 1.26 times less return on investment than SoFi Technologies. But when comparing it to its historical volatility, American Express is 2.63 times less risky than SoFi Technologies. It trades about 0.09 of its potential returns per unit of risk. SoFi Technologies is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  515.00  in SoFi Technologies on February 5, 2024 and sell it today you would earn a total of  181.00  from holding SoFi Technologies or generate 35.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

American Express  vs.  SoFi Technologies

American Express

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, American Express may actually be approaching a critical reversion point that can send shares even higher in June 2024.

SoFi Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SoFi Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, SoFi Technologies is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with American Express and SoFi Technologies

The main advantage of trading using opposite American Express and SoFi Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Express position performs unexpectedly, SoFi Technologies can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in SoFi Technologies will offset losses from the drop in SoFi Technologies' long position.

The idea behind American Express and SoFi Technologies pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.